Despite growing caution amongst global banks on investing in China due to the ongoing tech crackdown, UBS remains positive on the market and stresses that there is little to worry about as such regulatory shakeups exist elsewhere too.
«Yes, all these regulatory measures have created concerns and really affected corporate earnings and, more so, on valuations [of Chinese stocks],» said Eva Lee, head of Greater China equities at UBS Global Wealth Management’s chief investment office yesterday during a virtual briefing attended by finews.asia. «But it’s not just in China.»
According to Lee, U.S. authorities have also taken similar steps to address similar issues regarding antitrust, data security and privacy, though it was implemented more gradually and enforcement occurred over a less concentrated period, resulting in less impact to U.S. tech stocks.
«China has actually followed what the U.S. has already done,» Lee explained. «I think they are trying to bring themselves, in terms of platform, to be equal or similar to international practice.»
Not a Short-Term Trade
Despite the optimism about regulatory impact, Lee notes that there is likely to be continued effect in the near term on earnings and valuations but the bank remains positive in the long-term on a two to three-year horizon.
«If investors are thinking about a short-term trade, maybe the volatility is still there and it might not be in their favor,» Lee said.
«[But tech leaders] are not going to lose their market share substantially. The big players will remain as giants in their industries. The overall China market gives you mid to high single-digit returns and earnings growth. If you talk about new economy sectors, they give you mid-teens growth and probably even better valuations now.»
MSCI China
Equities remain as UBS’ most preferred asset class, led by Asian equities, according to the bank’s latest outlook.
Within Asia, the bank is positive on China in the long-term – including consumer durables and services from reopening prospects, alongside green tech and renewable from policy support – with expectations for mid-teen upside for MSCI China in 2022.
Nonetheless, the bank expects an economic slowdown in China, in line with the broader region, forecasting 5.4 percent growth in 2022 compared to 7.6 percent in 2021.
